Forex, or fx for short is an abbreviation of the phrase “foreign exchange”. Many things are exchanged (or in other words traded) between countries – gold, oil, iron and wheat to name a few. But the commodity that is traded the most is money. Forex trading is the buying and selling of international currency on an open market.
Why Buy and Sell Money?
Forex trading exists to facilitate trade between countries. The forex market we see today is a fairly recent invention, but exchanging one region’s currency for another has existed for thousands of years. If you lived in Jerusalem 2000 years ago you would have had Roman coins in your purse. If you were Jewish and wanted to visit the temple however, you had to pay the temple tax in Hebrew money. The temple money changers are a good example of early forex traders (even if the spread was a little harsh).
The forex market has changed from the days of a few silver coins on a wooden bench, but the principles are still the same. There are over 150 currencies in the world but we are yet to invent one that is accepted in every country (visa or mastercard don’t count). A Japanese oil importer has to convert Yen to US Dollars to buy sweet crude oil while a New York diamond merchant needs to pay for Russian diamonds in Roubles. International trade drives the world economies – it’s the forex market that makes it all possible.
What Currencies Can I Trade?
According to the Bank of International Settlements, the equivalent of 4 trillion US dollars is traded every day on the international market. The majority of this trade is in a handful of currencies called the “majors”. As a forex trader, these are the currencies you will trade and include -
US Dollar – also referred to as simply “the dollar”. The majority of the worlds trade is in US dollars, though the Euro is catching up.
Euro – this is the official currency for 16 member states of the euro zone and was introduced to world financial markets in 1999. Euro coins and bank notes began circulating in 2002.
Japanese Yen – also called the “Yen”.
Pound Sterling – The British, while part of the European Union, is one member state that retained its currency. The Pound Sterling is also referred to as the “Pound”, the “Sterling” or the “Cable”.
Swiss Franc – known as the “Swiss” or “Swissy”.
Australian dollar – despite Australia only having a population of 22 million, the Australian dollar makes the list as it exports a large amount of commodities to the world. The Australian dollar is also known as the “Aussie”.
Canadian dollar – the last currency on this list is the Canadian dollar. This currency is also known as the “Loonie”.
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